- The Mexican peso pulls away from the 20.00 level as the US Dollar picks up.
- Hopes of Fed interest-rate cuts next week are acting as a headwind for the US Dollar.
- Technically, the USD/MXN pair remains bearish, with upside attempts limited at 20.30.
The Mexican Peso (MXN) is trading with moderate losses against the US Dollar (USD) on Thursday, pulling away from the key 20.00 level with all eyes on the US Producer Price Index (PPI) and Weekly Jobless Claims data. A deeper-than-expected deterioration of Mexico’s Industrial Output has contributed to the USD recovery
The USD is drawing some support from higher US Treasury yields, which have rallied for the last three days with investors paring back hopes of monetary easing for 2025. The strong US macroeconomic data and the outlook of higher inflationary pressures from Donald Trump’s policies are likely to limit the US central bank’s leeway to lower borrowing costs.
Earlier this week, softer-than-expected Mexican Consumer Prices Index data, coupled with a deteriorated Consumer Confidence index, has bolstered the case for a 25 bps cut by the Bank of Mexico next week.
Daily digest market movers: Weak Mexican data and higher US yields weigh on the MXN
- Mexico’s Industrial Production contracted by 1.2% in November, beyond market expectations of a 0.2% decline. Year-on-year, the Industrial Output declined 2.2% instead of the 0.6% expected. Data released in October showed a 0.6% monthly increase and a 0.4% decline in the previous 12 months.
- Later today, the US PPI is expected to have grown at a steady 0.2% pace in November and by 2.6% year-on-year, up from 2.4% in October. The core PPI is seen easing to 0.2% from 0.3% in the previous month with the yearly rate accelerating to 3.2% from 3.1%.
- US Initial Jobless Claims are seen declining to 220K in the first week of December from 224K in the previous week.
- On Wednesday, US Consumer Price Index (CPI) figures revealed that inflation accelerated to 0.3% in November and to 2.7% on the year as expected, posting its largest increase in seven months.
- Futures markets, however, are now nearly fully pricing a 25 bps cut by the Fed next week. The CME Fed Watch tool shows a 98% chance of such a scenario, up from 85% earlier this week.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
USD EUR GBP JPY CAD AUD NZD CHF USD 0.58% -0.03% 1.55% -0.04% -0.25% 0.74% 0.86% EUR -0.58% -0.59% 1.09% -0.54% -0.74% 0.24% 0.37% GBP 0.03% 0.59% 1.51% 0.05% -0.15% 0.84% 0.95% JPY -1.55% -1.09% -1.51% -1.61% -1.70% -0.93% -0.61% CAD 0.04% 0.54% -0.05% 1.61% -0.16% 0.79% 0.90% AUD 0.25% 0.74% 0.15% 1.70% 0.16% 0.99% 1.15% NZD -0.74% -0.24% -0.84% 0.93% -0.79% -0.99% 0.10% CHF -0.86% -0.37% -0.95% 0.61% -0.90% -1.15% -0.10% The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Mexican Peso technical outlook: USD/MXN remains supported above 20.00 key level
The USD/MXN pair remains steady above the 20.00 support area, with the December 5 high at the 20.30 area capping upside attempts. The pair is trading practically flat, awaiting US data.
The short-term bias remains bearish as a double top at 20.80 suggests the possibility of a deeper correction. The 20.00 psychological level is a key support. Below here the target is November’s low at 19.75.
On the upside, the December 5 high at 20.30 is holding upside attempts ahead of the December 2 high at 20.60 and November’s peak at around 20.80.
USD/MXN 4-Hour Chart
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
Source: https://www.fxstreet.com/news/mexican-peso-nears-the-key-2000-level-against-us-dollar-ahead-of-claims-ppi-202412121103